Counterpoint: Japan's Lost Decade is a Myth

The New York Times features an op-ed from Eamonn Fingleton arguing that Japan never suffered from a lost decade then and is doing perfectly well now. (He's been making this point for over a decade.) While I would probably agree that Japan's stagnation has been overstated by Western media, Fingleton fails to explain how China has overhauled Japan in a short span of time. He may also be misreading the consequences of such things as long lifespans and a strong currency for the nation's economic well-being. For one thing, continuing and sizeable current account surpluses he cites may be evidence of an inability to transition to a more domestically driven economy. Hence it is more vulnerable to economic downturns in export markets--even for capital goods--and the challenges posed by a strong currency.

For another thing, is life expectancy now a measure of competitiveness? Or, aren't substantial and still-rising health care costs an additional burden on Japan's fiscal well-being given that its citizens live so long? Speaking of which, why does the author (conveniently) ignore that its public debt is over 200% of GDP and that 2012 will not be a year for fiscal consolidation? Given that he keeps harping on US decline, it is odd that he gives Japan a free pass on debt while arguing that the US should emulate Japan. There are many holes in Fingleton's reasoning, but here's some of his cited "evidence" as to why Japan has not had a lost decade...

Japan’s average life expectancy at birth grew by 4.2 years — to 83 years from 78.8 years — between 1989 and 2009. This means the Japanese now typically live 4.8 years longer than Americans. The progress, moreover, was achieved in spite of, rather than because of, diet. The Japanese people are eating more Western food than ever. The key driver has been better health care.

Japan has made remarkable strides in Internet infrastructure. Although as late as the mid-1990s it was ridiculed as lagging, it has now turned the tables. In a recent survey by Akamai Technologies, of the 50 cities in the world with the fastest Internet service, 38 were in Japan, compared to only 3 in the United States.

Measured from the end of 1989, the yen has risen 87 percent against the U.S. dollar and 94 percent against the British pound. It has even risen against that traditional icon of monetary rectitude, the Swiss franc.

The unemployment rate is 4.2 percent, about half of that in the United States.

According to skyscraperpage.com, a Web site that tracks major buildings around the world, 81 high-rise buildings taller than 500 feet have been constructed in Tokyo since the “lost decades” began. That compares with 64 in New York, 48 in Chicago, and 7 in Los Angeles.

Japan’s current account surplus — the widest measure of its trade — totaled $196 billion in 2010, up more than threefold since 1989. By comparison, America’s current account deficit ballooned to $471 billion from $99 billion in that time. Although in the 1990s the conventional wisdom was that as a result of China’s rise Japan would be a major loser and the United States a major winner, it has not turned out that way. Japan has increased its exports to China more than 14-fold since 1989 and Chinese-Japanese bilateral trade remains in broad balance.

Lastly, what does the number of tall skyscrapers built in Tokyo have to do with Japan's relative prosperity? Isn't it a function of land being scarcer in Tokyo than major American cities alike relatively roomy LA? As I said, there are many glaring questions here but read it and see what you make of it yourselves. Yes, America is not doing well but it can do far better than emulate Japan of all places.